Charitable IRA contributions

[lexi]

Here are the facts:

i have a 70.5 year-old man who is a 5% owner and is already receiving RMD from the employer's 401(k) plan. He wants to take advantage of the charitable IRA contribution under the PPA of 2006.

Obviously, as his retirement plans are arranged now, he can't at all take advantage of the new giving provision because he isn't yet in an IRA or Roth IRA.

Question: how do we move him into an IRA/Roth IRA while he is currently receiving RMD under the 401(k) plan. The code and regs make clear that you can't rollover an RMD.

However, what if we included this year's RMD in GI while simultaneously rolling the 401(k) plan assets into an IRA, at which point we could make a $100K contribution in 2007?

Also, from my understanding, assets rolled into an IRA from a qualified plan retain their creditor-exempt status under ERISA.

What am i missing or just plain not thinking about?

[Guest zora]

Why not just request a full distribution and whatever is not an RMD roll it over to an IRA?

[Appleby]

Why not just request a full distribution and whatever is not an RMD roll it over to an IRA?

...I think becuuse he would not get the benefit of the charitable contribution...but, I agree that the option would be to first take the RMD and move the balance to the IRA as a direct rollover. That should be done this year., so that he will be eligible for the charitable contribution next year... He will not be eligible for the charitable contribution this year....

[Guest mjb]

This is an interesting Q. The statute allows a charitable contribution of 100k for 2006 and 2007 and also provides that the charitable distribution will be included as an MRD. I dont know if the contribution must be a mrd to qualify as a charitable contribution since charitable contributions can be made from roth IRAs for which no mrds are required. It may be possible for the owner to transfer his pension benefits to an IRA in 06 and make a charitable contribution for this yr although no mrd will be reported (no different than making a withdrawal in 06).

[jevd]

Although charitable contributioins will be allowed from a ROTH IRA, only taxable amounts will be allowed as a qualified contribution. The ordering rules for ROTH still apply and therefore all non-taxable amounts would need to be withdrawn from the ROTH IRA Since this is only for account owners 70 1/2 and older all distributions would be tax free except earnings on contributions where the account or the conversion was less than 5 years old. Hardly seems worth it unless the intent is to close the ROTH this year or next.

[Guest mjb]

The point is that taxable amounts from Roth distributions are eligible for charitable contributions even though they are not MRDs. Similary the distributions from a taxable IRA after a rollover from a Q plan will be taxable in 2006 even though they will not be an MRD in 2006.

[Guest zora]

Why not just request a full distribution and whatever is not an RMD roll it over to an IRA?

...I think becuuse he would not get the benefit of the charitable contribution...but, I agree that the option would be to first take the RMD and move the balance to the IRA as a direct rollover. That should be done this year., so that he will be eligible for the charitable contribution next year... He will not be eligible for the charitable contribution this year....

If he requested a distribution of the full amount and rolled over the remainder (e.g., the balance in excess of the rmd) to an IRA, why would he not be eligible for a charitable contribution this year?

[Bird]

If he requested a distribution of the full amount and rolled over the remainder (e.g., the balance in excess of the rmd) to an IRA, why would he not be eligible for a charitable contribution this year?

He would be eligible, IMO.

I don't think this is all that complicated. He takes his RMD in cash; that's a separate issue and isn't even relevant to the discussion. He requests a distribution in the form of a direct rollover to an IRA and then does the charitable thing from the IRA. The only issue is - does the plan permit in-service distributions, and if so can they be partial?

[Guest zora]

I agree with Bird.